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Australian retailer Wesfarmers plans to demerge Coles division

RBR Staff Writer Published 16 March 2018

Australia’s retail giant Wesfarmers is planning to spin off its supermarket chain Coles and list it on the country’s stock exchange.

The move is subject to shareholder and other approvals.

The company took the decision after a review of its portfolio and evaluation of the composition of its capital employed to support higher levels of future growth and total return for shareholders.

Coles provides fresh food, groceries, general merchandise, financial services, liquor, hotels and fuel.

It has a workforce over 109,000 people across the country and processes about 21 million customer transactions per week via a national network of about 2,500 stores and through online platforms.

The businesses which will be included in this proposed demerge include a national network about 806 supermarkets along with Coles Online, 894 liquor stores nationally through Liquorland, Vintage Cellars and First Choice Liquor, Coles Express which operates 712 fuel and convenience store outlets under exclusive alliance with Viva Energy, Coles Financial Services, offering general insurance and credit cards, and Spirit Hotels, a chain of 88 hotels which are concentrated in Queensland.

As on 31 December 2017, Coles accounted for about 60% of the Group’s capital employed and 34% of its divisional earnings. The Group stated that it was repositioning its portfolio to target higher capital weighting towards businesses with strong future earnings and growth prospects.

Wesfarmers managing director Rob Scott said: “We believe Coles has developed strong investment fundamentals and is of a scale where it should be operated and owned separately. It is now a mature and cash generative business, which is expected to have a strong balance sheet and dividend paying capacity.

“Coles will be well positioned to continue to deliver long-term earnings growth, with an earnings profile that is expected to be resilient through economic cycles.”

After the demerger, Wesfarmers’s remaining operating divisions will include several businesses and Australian brands such as Bunnings, Kmart, Officeworks, and its Industrials portfolio.

Wesfarmers says that it plans to retain a minority interest of about 20% in Coles after the demerger to support strategic alignment between the two companies in relation to growth initiatives in the areas of data and digital.

If the demerger is implemented, shareholders in Wesfarmers will receive shares in Coles proportional to their existing shares in Wesfarmers, after taking into account any shares to be retained by Wesfarmers.

The company also said that Steven Cain will succeed John Durkan as the next managing director of Coles. Durkan will remain in an advisory capacity after the leadership change to ensure seamless transition.

Image: Wesfarmers managing director Rob Scott. Photo: Courtesy of Wesfarmers Limited.